Tuesday, July 10, 2012

519 China protects its economy; given priviliged access to US Treasury bonds

China protects its economy; given priviliged access to US Treasury
bonds

(1) Trade policy is just as important as Bank policy
(2) China
protects its economy from foreign investors
(3) China given priviliged access
to US Treasury bonds
(4) US expels Confucius Institutes for mixing Propaganda
with their
language courses
(5) Confucius Institutes are agencies of the
Chinese Government; accused
of spying
(6) China Daily admits that "Free
Trade" is a zero-sum game
impoverishing the West

(1) Trade policy is
just as important as Bank policy - Peter Myers, June 3, 2012

In
alternative economic circles, most writing is about the nature of
money, and
the need for public isuance rather than private monopolies.
Thus Stephen
Zarlenga, Ellen Brown and many others.

But national Banking will have
limited benefit unless Trade policies are
changed too. When are the
alternative economists going to wake up to that?

Admittedly, Michael
Hudson has written two books favouring
Protectionism. But he vacillates
between that "American System"
(National System) economy and the
Marxist/Trotskyist ideas he earlier
favoured.

Free Trade means that
importers can sell goods into the domestic market
which prevent one's own
workers and companies from competing. At the
same time as we shed jobs, we
hemorrage Capital (via trade deficits),
and sell off the farm.

Our
politicians are keeping this issue off the agenda; or, if they do
raise it,
blaming China for manipulating trade and currency in its own
interest, when
the real problem is Free Trade per se, as imposed by
Western
oligarchies.

China's promotion of Confucius, via Confucius Institutes
worldwide, is
in stark contrast to Mao's anti-Confucius campaign. Mao's
photo still
appears on China's banknotes (without it, what role for the
Communist
Party?) but this is a hollow image, because his ideas and values
have
been completely overthrown. In the process, China has moved from
Communism to National Socialism.

The Communist Party has locked up most sectors for
state-owned
enterprises, writes John Lee

JOHN LEE

PUBLISHED:
15 MAY 2012 00:07:12 | UPDATED: 15 MAY 2012 00:32:45

Foreign Minister Bob
Carr is in China to deepen Australia’s
relationship. While it is true that
improving the bilateral relationship
will not harm economic relations with
China, neither will it guarantee
significantly more opportunities for
Australian companies.

In fact, the prospects for local companies gaining
a greater foothold in
the potentially vast Chinese market are largely out of
our hands.

Of the approximately $65 billion of Australian exports to
China in
2010-11, more than $47 billion was in commodities from beneath the
ground.

Export of services increased to about $5.7 billion over the same
period
but $4.8 billion of this was education and tourism. Beyond
commodities,
we sell very little of our goods and services to consumers
inside China.

Australian firms – and our diplomats – will need to work
harder to gain
significant penetration in lucrative manufacturing and
services markets
within China.

Half of the equation is to obviously
have the products and services that
Chinese consumers want and need. The
other half is to gain actual market
access. This is where Chinese domestic
politics is decisive.

In December 2006, the state-owned Assets
Supervision and Administration
Commission (SASAC) of the State Council
issued a guiding opinion on the
role of state-owned enterprises (SOEs) in
key economic sectors.

In it, defence, energy refining and infrastructure,
petroleum and
petrochemicals, telecommunications, civil aviation and
shipping were
formally designated “strategic industries” in which the state
would
maintain sole ownership or absolute control over any significant
company
operating in these sectors.

These sectors were added to banking and
finance, insurance, media and
domestic education, which already had SOE
dominance. And in the most
recent Five-Year Plan (2011-15), released in
March 2011, so-called
“national champions” were to take the lead in
“strategic” emerging
industries such as healthcare, renewable technology and
applications,
biotechnology, high-end equipment manufacturing,
energy-efficient
vehicles and emerging IT sectors such as cloud storage
technologies.

Bank loans on preferential terms were to be made available
to Chinese
SOEs to establish a dominant presence in these domestic sectors.
The
State Council also agreed that domestic private and foreign firms were
to be constrained or even excluded from gaining a foothold in strategic
and pillar industries.

Where indigenous SOE technology and know-how
was lacking, foreign firms
were to be selectively allowed to form joint
ventures with SOEs in order
to hasten technology transfer.

Since 2002
government agencies and entities (including SOEs) must
purchase
Chinese-owned and produced goods, works and services.

The only exception
is when foreign firms can supply these goods and
services at a cost of at
least 20 per cent cheaper, in effect excluding
the vast majority of foreign
firms from developed economies, unless
these firms are willing to accept a
massive loss to enter the Chinese
market.

Australian firms need to
understand that these policies were put in
place in order to ensure that the
economic entities controlled by the
Chinese Communist Party (CCP) remain the
dominant commercial players in
key sectors, and that the CCP remains the
dominant dispenser of
economic, commercial and career opportunity in the
country.

The interests of China’s SOEs have largely been conflated with
the
interests of one of the two dominant factions within the CCP–the
so-called princelings of which the incoming president, Xi Jinping, is a
member.

It is therefore unlikely that the next generation of leaders
who will
assume power in early 2013 will change these policies. Despite
Chinese
protestations to the contrary, Australian firms with value-added
products and services will find it difficult to penetrate the Chinese
domestic market. No amount of deft diplomacy will change Beijing’s
mindset.

John Lee is the Michael Hintze Fellow for Energy Security and
Adjunct
associate professor at the Centre for International Security
Studies,
Sydney University, and a non-resident senior scholar at the Hudson
Institute in Washington, DC.

(Reuters) - China
can now bypass Wall Street when buying U.S. government
debt and go straight
to the U.S. Treasury, in what is the Treasury's
first-ever direct
relationship with a foreign government, according to
documents viewed by
Reuters.

The relationship means the People's Bank of China buys U.S. debt
using a
different method than any other central bank in the
world.

The other central banks, including the Bank of Japan, which has a
large
appetite for Treasuries, place orders for U.S. debt with major Wall
Street banks designated by the government as primary dealers. Those
dealers then bid on their behalf at Treasury auctions.

China, which
holds $1.17 trillion in U.S. Treasuries, still buys some
Treasuries through
primary dealers, but since June 2011, that route
hasn't been
necessary.

The documents viewed by Reuters show the U.S. Treasury
Department has
given the People's Bank of China a direct computer link to
its auction
system, which the Chinese first used to buy two-year notes in
late June
2011.

China can now participate in auctions without placing
bids through
primary dealers. If it wants to sell, however, it still has to
go
through the market.

The change was not announced publicly or in
any message to primary dealers.

"Direct bidding is open to a wide range
of investors, but as a matter of
general policy we do not comment on
individual bidders," said Matt
Anderson, a Treasury Department
spokesman.

While there is been no prohibition on foreign government
entities
bidding directly, the Treasury's accommodation of China is
unique.

The Treasury's sales of U.S. debt to China have become part of a
politically charged public debate about China's role as the largest
exporter to the United States and also the country's largest
creditor.

The privilege may help China obtain U.S. debt for a better
price by
keeping Wall Street's knowledge of its orders to a
minimum.

Primary dealers are not allowed to charge customers money to bid
on
their behalf at Treasury auctions, so China isn't saving money by
cutting out commission fees.

Instead, China is preserving the value
of specific information about its
bidding habits. By bidding directly, China
prevents Wall Street banks
from trying to exploit its huge presence in a
given auction by driving
up the price.

It is one of several
courtesies provided to a buyer in a class by itself
in terms of purchasing
power. Although the Japanese, for example, own
about $1.1 trillion of
Treasuries, their purchasing has been less
centralized. Buying by Japan is
scattered among institutions, including
pension funds, large Japanese banks
and the Bank of Japan, without a
single entity dominating.

Granting
China a direct bidding link is not the first time Treasury has
gone to great
lengths to keep its largest client happy.

In 2009, when Treasury
officials found China was using special deals
with primary dealers to
conceal its U.S. debt purchases, the Treasury
changed a rule to outlaw those
deals, Reuters reported last June. But at
the same time it relaxed a
reporting requirement to make the Chinese
more comfortable with the amended
rule.

Another feature of the U.S.-China business relationship is
discretion:
The Treasury tried to keep its motivation for the 2009 rule
change under
wraps, Reuters reported.

Documents dealing with China's
new status as a direct bidder again
demonstrate the Treasury's desire for
secrecy -- in terms of Wall Street
and its new direct bidding
customer.

To safeguard against hackers, Treasury officials upgraded the
system
that allows China to access the bidding process.

Then they
discussed ways to deflect questions from Wall Street traders
that would
arise once the auction results began revealing the undeniable
presence of a
foreign direct bidder.

"Most hold the view that foreign accounts only
submit 'indirect bids'
through primary dealers. This will likely cause
significant chatter on
the street and many questions will likely come our
way," wrote one
government official in an email viewed by Reuters.

In
the email, the official suggested providing basic, general answers to
questions about who can bid in Treasury actions.

"For questions more
extensive or probing in nature, I think it prudent
to direct them to the or
Treasury public relations area," the official
wrote.

The granting to
China of direct bidder status may be controversial
because some government
officials are concerned that China has gained
too much leverage over the
United States through its large Treasury
holdings.

For example,
Economist Brad Setser, who is a member of the National
Economic Council and
has also served on the National Security Council,
has argued China's large
Treasury holdings pose a national security threat.

Writing for the
Council on Foreign Relations in 2009, Setser posited
that China's massive
U.S. debt holdings gave it power over U.S. policy
via the threat of a swift,
large sale of U.S. debt that could send the
market into turmoil and drive up
interest rates.

But Treasury officials have long maintained that U.S.
debt sales to
China are kept separate from politics in a business
relationship that
benefits both countries. The Chinese use Treasuries to
house the dollars
they receive from selling goods to the United States,
while the U.S.
government is happy to see such strong demand for its debt
because it
keeps interest rates low.

A spokesman for the Chinese
embassy in Washington did not respond to
calls and emails seeking
comment.

The United States has, however, displayed increasing anxiety
about China
as a cybersecurity threat. The change Treasury officials made to
their
direct bidding system before allowing access to China was to limit
access to the system to a specially designed private network connection
controlled by the Treasury.

China is among the most sensitive topics
for bankers and government
officials who court the country as a financial
client because of its
size and importance, and none would agree to comment
on the record for
this story.

A former debt management official at
the Treasury who did not want to be
identified said that as China's
experience in the U.S. Treasury market
has deepened over time, Chinese
officials may have felt more comfortable
taking the reins in the management
of their holdings.

Their request to bid directly, in his view, came from
a confidence that
their money managers could buy U.S. debt more efficiently
on their own
than through Wall Street banks, which can often drive up the
price of
Treasuries at an auction if they know how much large clients are
willing
to pay. Such a practice that is not specifically illegal, though
most
traders would deem it unethical.

Evidence of China's growing
sophistication as a money manager in the
U.S. markets is clear in its
expansion of operations in New York. Its
money management arm, the State
Administration for Foreign Exchange
(commonly called SAFE), has an office in
Midtown Manhattan and a
seasoned chief investment officer -- former Pacific
Investment
Management Co derivatives head Changhong Zhu -- in
Beijing.

A woman who answered the phone at SAFE's New York office said no
one in
the office was authorized to talk to the media.

(Editing by
Martin Howell and Steve Orlofsky)

(4) US expels Confucius Institutes for
mixing Propaganda with their language courses

According to a new US State Department
directive last week, Confucius
Institutes in the US must obtain American
accreditation. The directive
also says that some academics at these
institutes who are holding J-1
visas will not get their visas extended,
which means they will have to
leave the US. If the directive comes into
force, Confucius Institutes
and Schools in the US will face a lot of
trouble. The US obviously wants
this.

Confucius Institutes have
expanded their global presence in recent
years. There are now 691 Confucius
Institutes and Schools, 69 of which
are in the US. Their rapid development
can be partly attributed to
China's active promotion, but the decisive
factor is the great demand
for learning Chinese.

After Spanish, which
was brought by Latino immigrants, Chinese has
become the first foreign
language taught in the US. The arrival of
Confucius Institutes and
Americans' eagerness to learn Chinese are a
perfect match. The Confucius
Institutes in the US are established in
accordance with the requirements of
American universities and colleges.
The Chinese-teaching volunteers are
actually invited by US academies.

US academies will bear the loss if
Chinese teachers and volunteers leave
the US. What China loses is a chance
to promote its culture. Compared
with the US' need for Chinese-training
talents to better communicate
with China, China's demand is not so
urgent.

The issue shows that the US' cultural confidence is not as strong
as we
thought. The promotion of Chinese language and culture by Confucius
Institutes makes some Americans uneasy. Only culturally weak countries
have such sensitivity.

Chinese language is difficult to learn.
Confucius Institutes set up a
model where China and foreign countries
cooperate to teach Chinese,
which has sped up the promotion of Chinese
teaching worldwide.

Some countries can resist Confucius Institutes, but
they can't hold back
people's interests to learn Chinese as long as China
stays on its track
of development. Confucius Institutes can hold a
cooperative attitude,
but do not need to beg any governments.

China's
Ministry of Foreign Affairs said it was discussing the matter
with the US.
Presidents from many universities in the US have publicly
objected to the
government's decision. China doesn't need to feel as
anxious as the US.
Confucius Institutes should continue to develop
globally. They have become
the major promoter of Chinese culture. They
can slow their pace of
development in countries that make trouble for them.

When a country's
economy develops, it will care about respect from other
countries. The
Chinese are clear that the establishment of a country's
soft power is
difficult.

The development of Confucius Institutes shows a mixed
relationship
between China and other countries during China's rise. Their
evaluation
is bound to be varied, but the most objective one is the demand
of them
in the world.

(5) Confucius Institutes are agencies of the
Chinese Government; accused of spying

Confucius
Institutes are non-profit public institutions aligned with the
Government of
the People's Republic of China that aim to promote Chinese
language and
culture, support local Chinese teaching internationally,
and facilitate
cultural exchanges.

Confucius Institutes are sometimes compared to
language and culture
promotion organizations such as France's Alliance
Française and
Germany's Goethe-Institut. Unlike these organizations,
however,
Confucius Institutes do not claim to be independent from their
government and operate within established universities, colleges, and
secondary schools around the world, providing funding, teachers and
educational materials. This has raised concerns over their influence on
academic freedom and the possibility of industrial espionage,[1] as well
as its role in advancing China's soft power and cultural influence
internationally.[2]

Confucius Institute (CI) headquarters are located
in Beijing, and the
program is overseen by the Office of Chinese Language
Council
International (Hanban), a non-profit organization affiliated with
the
Ministry of Education of the People's Republic of China and the United
Front Work Department.[3][4][5] The institutes operate in co-operation
with local affiliate colleges and universities around the world, and
financing is shared between Hanban and the host institutions. The
related Confucius Classroom program partners with local secondary
schools or school districts to provide teachers and instructional
materials.[6][7]

[edit]History

After establishing a pilot
institute in Tashkent, Uzbekistan, in June
2004, the first Confucius
Institute opened on 21 November 2004 in Seoul,
South Korea. Hundreds more
have since opened in dozens of countries
around the world with the highest
concentration of Institutes in the
United States, Japan, and South Korea.[8]
In April 2007 the first
research-based Confucius Institute opened at Waseda
University, in
Japan. In partnership with Peking University the program
promotes the
research activities of graduate students studying China.[9] As
of
October 2010, there were 322 Confucius Institutes and 337 Confucius
Classrooms in 94 countries and regions.[10] The Ministry of Education
estimates 100 million people overseas may be learning Chinese by 2010
and the program is continuing rapid expansion to keep pace.[11] Hanban
aims to establish 1,000 Confucius Institutes by 2020.[12] Chinese state
media suggests that the quick expansion of the institutes testifies to
the irresistible influence of China in a world "begging for the opening
of Confucius Institutes," but according to Anne-Marie Brady, a scholar
of Chinese propaganda, many CIs remain mostly empty
shells.[13]

[edit]Name

The well-known Chinese philosopher,
Confucius (551–479 BCE) is the
namesake for the Institutes. Communist
leaders throughout the 20th
century have criticized and denounced the
philosopher as the
personification of China's "feudal" traditions, with
anti-Confucianism
ranging from the 1912 New Culture Movement to the 1973
Criticize Lin,
Criticize Confucius campaign during the Cultural
Revolution.[14] In
recent decades, interest in pre-modern Chinese culture
has grown in the
People's Republic of China, and Confucius in particular has
seen a
resurgence in popularity.[15] Abroad Confucius is a universally
recognizable symbol of Chinese Culture, free of the controversy
surrounding other prominent Chinese figures such as Mao Zedong.[16]
"Confucius Institute" is a trademarked brand name. Chen Jinyu,
Vice-Chairperson of the CI Headquarters, explained, "With regards to the
operation of Confucian Institutes, brand name means quality; brand name
means returns. Those who enjoy more brand names will enjoy higher
popularity, reputation, more social influence, and will therefore be able
to generate more support from local communities."[17] A 2011 crackdown
protected "Confucius Institute" from preregistration infringement in
Costa Rica.[18]

[edit]Purpose

The proliferation of Confucius
Institutes around the world has multiple
purposes: the promotion and
teaching of Chinese culture and language
abroad, the encouraging of trade
tries, and the extension of the Chinese
Party-State's campaign of "soft
power" into the educational sphere in
foreign countries. CIs develop Chinese
language courses, train teachers,
hold the HSK Examination (Chinese
proficiency test), and provide
information about contemporary China.[19] The
director of the CI
program, Xu Lin, says CIs were started to cater to the
sudden uptick in
interest in Chinese language around the world; they also
provide Chinese
language teaching staff from the Mainland. As of 2011 there
were 200
such teachers working in the United
States.[20]

[edit]Political goals

Confucius Institute also have
non-academic goals, according to scholars
and journalists. The CI also has
the goal of improving China's image
abroad and assuaging concerns of a
"China threat" in the context of the
country' s increasingly powerful
economy and military[21][22]

Li Changchun, the 5th-highest ranking member
of the Politburo Standing
Committee, was quoted in The Economist saying that
the Confucius
Institutes were “an important part of China’s overseas
propaganda
set-up”—a statement that has been seized upon by critics as
evidence of
a politicized mission.[23]

Many foreign scholars have
characterized the CI program as an exercise
in soft power, expanding China's
economic, cultural, and diplomatic
reach through the promotion of Chinese
language and culture,[24] while
others have suggested a possible role in
intelligence collection.[25][26]

The Economist notes that China "has been
careful not to encourage these
language centres to act as overt purveyors of
the party’s political
viewpoints, and little suggests they are doing so...
but officials do
say that an important goal is to give the world a “correct”
understanding of China." The article notes that one website, supported
by the Chinese government, lauded the efforts of unnamed Confucius
Institutes in opposing Chinese dissident groups abroad, such as Tibetan
independent activists, democracy groups and the Falun
Gong.[27]

According to Peng Ming-min, a Taiwan independence activist and
politician, colleges and universities where a Confucius Institute is
established have to sign a contract in which they declare their support
for Beijing’s “one China” policy. As a result, both Taiwan and Tibet
become taboos at the institutes, he claims.[28] This claim is in
dispute, however. Michael Nylan, professor of Chinese history at the
University of California at Berkeley, says CIs have become less
heavy-handed in their demands, and have learned from "early missteps,"
such as insisting that universities adopt a policy that Taiwan is part
of China. Nylan took an informal survey of faculty and administrators at
fifteen universities with Confucius Institutes; "two respondents
reported that institutes had exerted pressure to block guest speakers,"
but both events went ahead anyway.[29]

Scholars of China's propaganda
system see CIs in the context of the
Party-State's modernization of its
propaganda apparatus.[30] Other
initiatives include Chinese contemporary art
exhibitions, television
programs, concerts by popular singers, translations
of Chinese
literature, and the expansion of state-run news channels such as
Xinhua
News Agency and China Central
Television.[31]

[edit]Organization

Hanban states on its website
that it is a non-government organization,
though it is connected with the
Ministry of Education and has close ties
to a number of senior Communist
Party officials. The current chair of
Hanban is Politburo member Liu
Yandong,[32] whose former postings
include the head of the United Front Work
Department. The Chinese
Government shares the burden of funding Confucius
Institutes with host
universities, and takes a hands-off approach to
management.[33] The
Institutes function independently within the guidelines
established by
Hanban and the Confucius Institute headquarters. Each
Institute is
responsible for drawing up and managing their own budget which
is
subject to approval by the headquarters. Confucius Institute
headquarters provides various restrictions on how their funds may be
used including earmarking funds for specific purposes.[34] Institutes in
the United States are generally provided with $100,000 annually from
Hanban, with the local university required to match funding.[35]

In
addition to their local partner university Confucius Institutes
operate in
co-operation with a Chinese partner university.[36] Many
Institutes are
governed by a board which is composed of several members
from the Chinese
partner school and the remainder of the members are
affiliated with the
local partner university.[37] At most Institutes the
director is appointed
by the local partner university.[33]

[edit]Hiring policies

The
Hanban website stated that Chinese language instructors should be
“Aged
between 22 to 60, physical and mental healthy, no record of
participation in
Falun Gong and other illegal organizations, and no
criminal
record.”[38]

Human rights lawyers and media commentators in North America
have argued
that the part of the hiring policy that discriminates against
Falun Gong
believers is in contravention of anti-discrimination laws and
human
rights codes.[39] Marci Hamilton, Paul R. Verkuil Chair in Public Law
at
Yeshiva University in New York City, commented that the policy is
“unethical and illegal in the free world."[40] In the face of such
criticism, directors at some Confucius Institutes said that since
teachers come from China, hiring guidelines are the prerogative of
Chinese authorities. Yan Yuzhou, associate-director of the Confucius
Institute at Pace University in New York, agreed that “the Chinese
government has a right to ban
them.”[40]

[edit]Curriculum

Confucius Institutes teach simplified
Chinese characters?which are
standard in Mainland China?rather than the
traditional Chinese
characters used in Taiwan and Hong Kong. Canada's Globe
and Mail stated
that this "would help to advance Beijing’s goal of
marginalizing Taiwan
in the battle for global influence.”[41] China Heritage
Quarterly
describes teaching only simplified characters in the context of
Confucius Institutes as "semi-literacy in Chinese".[42] In 2011 in
response to the PRC's moves, the Republic of China announced plans to
establish the 'Taiwan Academy' in America, Europe, and Asia as part of
its "cultural diplomacy". Taiwan's programme is designed to promote
"Taiwanese-favored" Mandarin Chinese, traditional Chinese characters,
and Taiwanese topics.[43] In response to claims that the curriculum at
CIs is determined by political consideration, the CI director for the
Chicago Public Schools said that "Confucius Institutes have total
autonomy in their course materials and
teachers."[44]

[edit]Controversies

Main article: Concerns and
controversies over Confucius Institutes In
the short time-frame of their
rapid expansion the Institutes have been
the subject of much controversy.
Criticisms of the Institutes have
included practical concerns about finance,
academic viability, legal
issues, and relations with the Chinese partner
university, as well as
ideological concerns about improper influence over
teaching and research,
industrial and military espionage, surveillance of
Chinese abroad, and
undermining Taiwanese influence.[45] There has also been
organized
opposition to the establishment of a Confucius Institute at
University
of Melbourne,[46] University of Manitoba,[47] Stockholm
University,[48][49] University of Chicago[50] and many
others.

Underlying such opposition, mostly by professors, is a concern
that a
Confucius Institute would interfere with academic freedom and be able
to
pressure the university to censor speech on topics the Communist Party
of China objects to. An article in The Chronicle of Higher Education
writes that here is little evidence of meddling from China although the
same article did go on to say the Institutes were "distinct in the
degree to which they were financed and managed by a foreign
government."[35] After interviewing China scholars, journalists and CI
directors, a writer for The Diplomat also found little support for the
concern that CIs would serve as propaganda vehicles, though some of her
sources did note that they would face constraints in their curriculum on
matters such as Tibet and human rights.[51] A New York Times article
quotes Arthur Waldron, a professor of international relations at the
University of Pennsylvania, that the key issue is academic independence.
"Once you have a Confucius Institute on campus, you have a second source
of opinions and authority that is ultimately answerable to the Chinese
Communist Party and which is not subject to scholarly review."[52]
...

Developing countries are now
drastically out-competing the developed
world. Capital is flowing away from
"rich" countries to emerging ones
via the huge trade deficits of developed
nations. The US, with its
ever-widening gap reaching $51.8 billion this
March, serves as the prime
example.

Trade surpluses of the developing
world, meanwhile, are giving emerging
nations - China included - the capital
with which to expand at
incredible rates.

It is a continuing process
via which economies of the West are being
dramatically weakened. Unable to
compete with cheap imports, Western
governments have been forced to embark
on massive borrowing programs to
maintain the lifestyles to which their
citizens have become accustomed.

The impact of this borrowing has driven
Western economies to become
reliant on debt and leverage, a cycle which has
become unsupportable.

Many developed countries are on the edge of
bankruptcy in Europe, just
as many of the countries in the developing world
are flush with cash.
Because of the competition gap, developing nations have
sensible fiscal
budgets and large trade surpluses, while many developed
countries have
runaway fiscal and trade deficits.

A depressed
developed world amounts to less prosperous "clients" for
China, which will
certainly cramp its growth.

However, this may not be so terrible, as too
much growth can be as
dangerous as too little.

The People's Bank of
China announced last week it would lower the
country's reserve requirement
ratio (RRR) by 50 basis points. Effective
from May 18, it is the second such
move this year and will allow Chinese
banks to lend more cash. The RRR cut
came after key economic data in
April, such as industrial output and fixed
asset investment suggested
the economy faces further downward
pressures.

China's fiddling with the RRR is an attempt to cool the
economy enough
to avoid a runaway, speculative bubble and instead produce a
soft landing.

Now, with Europe likely to enter an extended period of
recession or
stagflation, the euro crisis may produce a cooling effect
without a
credit squeeze. As such, there is a lot of room for looser
monetary
policy ahead.

European austerity, either by contraction or
default, will drag on the
world economy, including developing nations. As
such, fears of economic
overheating in both China and other BRIC countries
will be greatly reduced.

However, as developing countries lose their
primacy in trade, the risks
to global trade will rise. Trade imbalances must
be less acute or
developed creditor countries will simply go broke and cease
to be good
customers.

The "golden geese" of the West need to be
allowed to even the score of
trade - whether that is through the
deregulation of developing
countries' trade laws or by their acceptance of
higher valuations of
their currencies.

The developed world simply
can't continue much longer trading at
trillion dollar yearly imbalances. One
way or another, laws of economics
will bring that to an end.

About Me

'Mission statement'.
I am convinced that jewish individuals and groups have an enormous influence on the world. The MSM are, for almost all people, the only source of information, and these are largely controlled by jewish people.
So there is a huge under-reporting on jewish influence in the world.
I see it as my mission to try to close this gap. To quote Henry Ford: "Corral the 50 wealthiest jews and there will be no wars." `(Thomas Friedman wrote the same in Haaretz, about the war against Iraq! See yellow marked area, blog 573)
If that is true, my mission must be very beneficial to humanity.